KAL expects economy to worsen despite uplift in interim earnings

TOP EXECUTIVES at KAL Group reckon that economic conditions in South Africa are unlikely to improve in the short-term outlook, despite the company upping its interim dividend against the backdrop of a 7% half-year surge in headline earnings per share (Heps).

KAL said yesterday it would pay a gross interim dividend of 54 cents per share for the six months ended March 2024, an 8% increase compared to 50c a year ago.

It said the dividend would be paid from income reserves.

The growth in the interim dividend for the period under review followed a 7.3% increase in half-year Heps to 408.74c per share.

Although shares in KAL Group strengthened by 1.35% to close at R43.60 on the JSE yesterday, market watcher Dave Hazelwood said the company’s “increase in profits was due to cost-cutting” initiatives as revenues for the half-year had slumped on a year-on-year basis.

KAL reported that half-year revenues for period to March at R12.06 billion had slumped from the contrasting period’s revenues of R12.09bn.

Other analysts said it was proving to be “difficult to grow a company like this in the current economic environment”.

They said KAL could perform “better when interest rates drop, Transnet is fixed” and when there is a more reliable power supply.

“Retail, petrol and construction under pressure,” said one market watcher.

The KAL Group is an agriculture and lifestyle company specialising in the trade and retail of agriculture, fuel and related markets in southern Africa.

Sean Walsh and George Steyn, CEO and board chairperson for KAL respectively, commented yesterday that “there is no indication of an improvement in economic conditions in the short term” for South Africa, while the current “low GDP forecasts remain concerning” for the company.

“The result of the May elections has the potential to impact the South African economy substantially,” the company’s top executives said.

They added that the half-year period had been characterised by “poor economic conditions and subdued growth,” as stubborn inflation and continued high interest rates “negatively impacted already struggling consumers”.

“Revenue pressure was evident across the general retail and agricultural channels during H1. However, the second quarter of the financial year improved significantly across all business units compared to the first quarter.”

Encouragingly, though, revenue growth in The Fuel Company (TFC) channel was solidified by fuel price increases. There was also an increase in manufacturing revenue as farm infrastructural spend improved.

Nonetheless, the general retail performance for KAL continued to be sluggish, and is expected to remain depressed for as long as inflation and current elevated interest rates persist.

“Convenience retail growth has slowed as load shedding reduced. However, this channel remains more resilient than general retail,” the company said.

“Given that certain convenience channels are under pressure while others are performing well, it is clear that convenience customers are looking for value-for-money offerings.”

During the period under review, group fuel volumes for KAL decreased by 2% amid an expected decline in the downstream fuel sector in South Africa. Analysts and some industry players anticipate fuel volumes across South Africa to slow down as the adoption of electric vehicles and hybrid models rises.